The Changing Nature of Import Relief

January 9, 2018

I normally don’t comment on specific trade cases that are pending, largely because they are advocacy driven, and saying anything inevitably produces cranky comments from people on the other side explaining in excruciating detail why I don’t know what I’m talking about. Way too much aggravation. However, the two Section 201 cases that the president will shortly decide—solar panels and washing machines—are good illustrations of how much the trade landscape has changed in recent years and how unexpectedly complicated these decisions have become.

For those who have forgotten (or never knew in the first place), Section 201 of the Trade Act of 1974 authorizes “safeguard” measures, which are permitted under limited circumstances by the World Trade Organization (WTO). To get relief, one need not prove dumping or subsidization or any other unfair practice. You simply need to establish that a fairly rapid increase in imports is causing serious injury (a higher threshold than the “material” injury in antidumping/countervailing duties cases). The safeguard concept permits temporary import relief in such cases, usually defined as no more than four years, with the expectation that any relief granted will decline in each succeeding year. To win, the International Trade Commission (ITC) must decide that serious injury has occurred by reason of the imports and recommend a remedy, but final action is up to the president, who has broad discretion.

This has not been a common remedy in recent years—the last one before these two was in 2001. It fell into disuse partly because it proved difficult to get presidents to approve relief even after an industry had “won” at the ITC, and the 2001 case involving steel, which we subsequently lost at the WTO, was a signal that even winning was no guarantee of significant relief.

The two current cases, however, illustrate how much the trading system has changed in the past 30 years. Early 201 cases involved items like footwear, where rapid increases in imports were wiping out a domestic industry. The consumer decision was binary—you bought American shoes or foreign—and the consequences showed up in job losses here and job gains overseas. The case was clear-cut, although the president did not always provide relief.

Things got more complicated in an automobile case in the 1980s. The industry failed to convince the ITC that the cause of its injury was imports as opposed to other factors, but the case, along with subsequent congressional attempts to legislate persuaded the Japanese to invest in the United States and move car production over here, thereby permanently changing the nature and composition of the domestic industry. Echoes of that strategy can be seen in the current washing machine case, where the defending Korean companies have pointed out the substantial number of jobs they plan to create in the United States, in the Samsung case via a new plant in South Carolina that has been touted by President Trump as a policy success.

The solar panel case raises another issue. The complaint was brought by U.S. manufacturers of panels, but it has been strongly opposed by the companies that install panels, which account for many more jobs than are involved in panel manufacture. Relief is also opposed by environmental groups arguing that it will lead to higher prices for solar panels and thus declining demand, fewer installations, and greater reliance on fossil fuels.

These are not binary choices like in the good old days. Then the argument against relief was primarily the consumer price argument—relief would make shoes more expensive. The president had to weigh prices versus jobs. In both new cases, there is opposition to relief from companies that account for (or say they will account for) a significant number of jobs, so the president has to weigh some jobs against other jobs, with, in the solar panel case, the likelihood that relief will lead to many more jobs lost than gained.

This shows why these cases are not “clean.” In a globalized marketplace where everything is made everywhere via global value chains, answers are not clear-cut. Import relief will save or create some jobs, but it will cost others. The cases also illustrate rather neatly why they end up on the president’s desk. The ITC is charged with two things: determining whether imports are a cause of serious injury, and, if so, proposing a remedy. It is not tasked with making the political judgment of whether saving those jobs outweighs other impacts on the economy, including other jobs that will be lost. That’s up to the president, which is why he gets the big bucks. But what he decides to do in the pending cases will convey an important message about whether he understands the changes that have occurred in the trading system or whether he is locked into “old think.”

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).